This tremendous surge in required capital was driven by the move to 3D NAND from planar NAND since 3D NAND requires much more fab equipment and additional cleanroom space to process the additional layers of the device as compared to planar NAND.

Most of the five major NAND flash suppliers have stated that they believe that NAND bit volume demand growth will average about 40% per year over the next few years. Figure shows that the capex needed to support a 40% increase in NAND bit volume shipments was exceeded by 27% last year and is forecast to exceed the amount needed by another 41% this year (NAND bit volume shipments increased 41% in 2017 but 1H18/1H17 bit volume shipments were up only 30%).

As a result, it is no surprise that NAND flash prices have already softened in early 2018. Moreover, the pace of the softening is expected to pick up in the second half of this year and continue into 2019.

Historical precedent in the memory market shows that too much spending usually leads to overcapacity and subsequent pricing weakness. With Samsung, SK Hynix, Micron, Intel, Toshiba/Western Digital/SanDisk, and XMC/Yangtze River Storage Technology all planning to significantly ramp up 3D NAND flash capacity over the next couple of years (with additional new Chinese producers possibly entering the market), IC Insights believes that the risk for significantly overshooting 3D NAND flash market demand is very high and growing.